Taking control at an early stage of any re structuring process is very important and will in most cases provide your business with more options to consider to position itself for a brighter future.
Administration and receivership procedures are formal ways to resolve the debts of a company that is insolvent.
Before debt becomes a serious threat to your business, seeking out the advice of experienced insolvency practitioners can ensure you remain in control of providing the best outcome at the minimal risk to your personal finances.
It is often possible to avoid the formal measures of administration or receivership if you act on cash flow or debt issues sooner rather than later.
Often demonstrating that you have initiated a restructure to rescue your business can buy you the time you need from your creditors.
Similarly, your best option may be to voluntarily enter into administration to protect your business from aggressive creditor actions.
But, even when administration is forced upon your business, our expert insolvency practitioners can help you secure the best outcome possible.
To help you understand how, here is an overview of the formal processes that insolvent companies may have to follow.
Company administration is when an insolvency practitioner is appointed to act as the administrator of your company with the goal of bringing about a recovery.
Administration can protect your company from aggressive creditors using legal measures to put it out of business through liquidation and dissolution.
In order for administration to deliver the best outcomes your company will need to have significant assets or value and reasonably predictable cash flow and profitability.
Pre pack administration allows for the purchase of your company’s assets to better preserve asset values, save jobs and maintain commercial momentum through continued customer service and supplier contracts.
Essentially, the old limited company is closed down and its business assets are sold to a new company, usually referred to as a newco, under whom trade can continue free from the stress of debts and creditor pressure.
Strict rules govern this process and your administrator must convince creditors that this action is in their – as well as your – interests.
Any legal actions being taken by creditors are effectively frozen: compulsory liquidation is no longer a threat during administration.
The financial position you are in with creditors will likewise not worsen.
The company is placed in the hands of a licensed insolvency practitioner who acts for the interest of your company as well as its creditors.
Your administrator is given time to create a viable plan for the business and for its repayments to creditors. At any point they can propose a company voluntary arrangement (CVA).
If a pre-pack administration is arranged then the continuity of the business itself can be secured.
During the administration you and other directors are no longer in control of the company.
The administration of your company will be publicly known.
It is possible that one of your creditors will petition to appoint their own administrator.
The high costs associated with administration will usually demand a strong and regular cash flow.
If a pre-pack administration is chosen, Transfer of Undertakings (Protection of Employment), or TUPE, regulations will apply. This means transferring all employee contracts and responsibility for meeting salaries over to the newco.
Receivership is increasingly less prevalent: it is only open as a recourse to creditors with whom you hold a debenture that was created before 15 September 2003 (i.e. nearly 20 years ago).
Administrative receivership is a formal insolvency proceeding in which a creditor appoints a receiver to assume control of your company.
Unlike administration, your interests and wishes are not considered – the main goal here is to sell any available assets to recoup the debt owed.
Thankfully in the steps needed to be taken before a receiver is appointed there are plenty of opportunities to demonstrate that your business can resolve this situation through other ways.
As ever you have the best chances and most options if you contact an insolvency practitioner sooner rather than later. If you’ve already breached the terms of a secured debenture that contains a fixed or floating charge contact us now to explore your option of setting up a company voluntary arrangement (CVA) or initiating other informal negotiations.
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